Bargains on Vacation Homes

Buoyed by gains in their investments and home equity, vacation-home buyers have returned to the beaches, woods and mountains in search of bargains on vacation properties. And they’ll find plenty, although they’ve probably missed out on rock-bottom prices.

Vacation-home sales rose 29.7% in 2013 from the year before, and the median price was up 13%, to $168,700, according to an annual survey by the National Association of Realtors. Sales are still well below their 2006 peak. And even though prices are rising, they’re still attractive. “It’s still a good opportunity for those who feel comfortable in their finances and want to diversify out of the stock market,” says Lawrence Yun, the NAR’s chief economist. Most buyers will use their homes for family vacations, and almost one-third anticipate living in them in retirement. The typical buyer is 47 and comes from a two-earner household with a median income of $90,660. More than one-third of buyers paid cash; of those who took out a mortgage in 2013, more than half put down 30% of the purchase price. (A down payment of 15% to 20% is typically required.)

The stock market has given the vacation-home market a boost. Buyers in the 45-to-64 age group, who own the biggest share of financial assets, are selling some of them to raise the cash they need and are using dividend payments to cover mortgage expenses, says a report from mortgage guarantor Fannie Mae. Real estate agents say that buyers are also raising cash by borrowing against home equity in their primary residence—with, say, a low-cost line of credit. The cost of mortgage borrowing is still low, despite interest rate increases over the past year. The average 30-year fixed rate was recently 4.3%. If you’re still paying for your primary home, lenders will consider whether you have enough income to cover another mortgage (see mortgage rates on vacation homes in your area).

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Top destinations for vacation-home buyers in 2013 included Arizona and California, where home values overall have regained one-third of what they lost in the bust, and Florida, a relative bargain with prices up just 18%. Mountain locations, such as Asheville, N.C., and Vail, Colo., offer some of the lowest prices compared with coastal locations, and Michigan and Wisconsin are always relatively affordable, says Yun.

See Also: Search for Vacation Homes in Your Area on Trulia.com

The deeply discounted properties that were repossessed and then sold by banks are rare now, says Tampa, Fla., buyer’s agent Dawn Rae. But buyers can still find good deals—for instance, a three-bedroom townhome in the desirable northeast section of St. Petersburg, with a hard-to-find deep-water dock, recently listed for $314,900. Or, in Treasure Island, a beach community on the Gulf of Mexico, a remodeled, two-bedroom condo with a boat dock that you can lease listed for $289,900.

Most sellers have priced their homes realistically, says Rae, so you may not have much negotiating room. Prepare to put down a persuasive deposit or even make an all-cash deal.

Today’s buyers may face a demographic hurdle by the time they’re ready to sell. The population most likely to buy a second home (ages 45 to 64) is expected to grow more slowly than the total adult population over the next 20 years. But if you can get a place in the sun today for a price you can afford—that’s priceless.